- The Washington Times - Thursday, March 19, 2009

Metropolitan Baptist Church was bursting out of its home. From a group of freed slaves in Civil War-era Washington, Metropolitan Baptist had grown into a modern-day megachurch and community service powerhouse. In 2006, construction began on the congregation’s dream complex in Largo - a $30 million campus with a 3,000-seat church, an education center and an 1,100-car parking lot.

Last year, the congregation sold its church in Washington. Preparations began for the move to what leaders had taken to calling “God’s land in Largo.” But on Oct. 20, plans were abruptly put on hold.

The Rev. H. Beecher Hicks learned that financing for the project had dried up. Construction stopped. And the congregation found that it was reduced to renting space and struggling to find new financing.

Add houses of worship to the list of casualties of the mortgage crisis.

Foreclosures and delinquencies for congregations are rising, according to companies that specialize in church mortgages. With credit scarce, church construction sites have gone quiet, holding shells of sanctuaries that were meant to be completed months ago.

Congregants have less money to give, and pastors who stretched to buy property in the boom are struggling to hold onto their churches.

“The economy has dramatically changed over the last year to 18 months in a way that very few, if any, had expected,” said John Stoffel, administrative pastor at Seabreeze Church in Huntington, Calif.

Seabreeze spent about $12 million on a new complex that was completed in 2007. But a drop in donations, partly as a result of a rift between the pastor and some church members, forced the church to renegotiate for an interest-only mortgage. Mr. Stoffel said Seabreeze hasn’t missed a payment, yet the mortgage is far from the church’s only debt. The church also owes $1.2 million, due this year, on bonds that helped finance the project, and must repay a $200,000 loan that a couple took out on their house to help Seabreeze cover its costs.

It’s hard to quantify just how many churches are at risk. Foreclosure records are scattered throughout county offices nationwide. Completing a foreclosure takes months or longer, so it’s too soon for many failures to show up on a company’s books. In financially stressed churches, clergy are often reluctant to discuss their plight. They don’t want to alarm their congregants, and they fear that any complaints about their dealings with banks will backfire.

“Right now, when you’re at the mercy of the lenders, you don’t want to look like you’re coming out against them,” said Bishop Eugene Reeves of New Life Anointed Ministries International in Woodbridge, Va.

The 3,500-member Pentecostal church needs a couple of million dollars to finish its new $19 million complex. Construction stopped last spring when New Life’s lender said it would make no new loans to the church, Mr. Reeves said.

“We now have children who don’t have classrooms to get into, adults who have to go to an overflow room,” he said. “We have parking issues. We don’t have enough spaces for cars.”

Across the country, congregations large and small are struggling to pay off debt.

Reliance Trust, an Atlanta company that is trustee for nearly three-quarters of the church bonds in the U.S., has seen “some increases in delinquencies,” said spokesman Tony Greene, though he would not elaborate. Among its clients is the Jewish Temple Beth Haverim in Agoura Hills, Calif., which sought Chapter 11 bankruptcy protection July and owes the company more than $7 million, Reliance said in court documents.

Strongtower Financial, an arm of the California Baptist Foundation, said in a prospectus that 10 percent of its $119 million in outstanding loans were in default as of March 31, 2008, its most recent required reporting date. Chet Reid, Strongtower’s president, said the specifics were private, but the company had only one foreclosure in the last decade, in 2006.

The Evangelical Christian Credit Union, a major church lender with more than $700 million in loans last year, moved to foreclose on seven of its 1,100 loans in 2008, said Mark Johnson, the company’s executive vice president. The company has had “a noticeable increase” in late payments, and two more foreclosures are expected this year, he said.

Church mortgages have always been considered one of the more solid investments, with lenders often boasting of only one or two foreclosures over a billion dollars in loans.

“You can certainly make a bad church loan if you try hard enough,” said Dan Mikes, who leads the church banking group of Bank of the West, a major lender. “But if you’re careful and you don’t overlend, and you’re cautious in the way you underwrite, you’re fine.”

The recent boom years brought changes that made the industry more vulnerable. Firms looking for new lending opportunities in a time of easy credit entered the industry, and competition escalated. The size and number of church loans skyrocketed, with several companies reporting double-digit annual growth rates before the bust.

Some lenders got into the business of securitizing church loans, combining them as an investment in the way banks did with home mortgages. In 2006, Strongtower Financial, based in Fresno, securitized church bonds for the first time, with a $56.3 million offering.

Roland Leavell, president of Rives, Leavell & Co., a church bond broker in Jackson, Miss., said that firms specializing in church financing often aped their commercial loan counterparts, lending too much money without a thorough check of what their clients could afford.

“When somebody on one side of the business gets moving fast and loose, it makes everybody else move fast and loose,” he said.

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